Case Summary (G.R. No. 138703)
First Restructuring in 1975
After payment difficulties, DBP consolidated outstanding principal of P4,655,992.35 into a seven-year promissory note (12% interest; partial amortizations from year three), plus a separate note for accrued interest and charges (P3,074,672.21), both secured by existing asset mortgages.
Terms of Notes and Penalties
The 1975 notes imposed:
• 12% per annum on unpaid amortizations;
• 10% per annum penalty on amortizations past due over thirty days;
• Service charges and penalties on bank‐paid advances (insurance, taxes, litigation).
Second Restructuring and Refinancing (1980–81)
Upon further default, DBP refinanced respondents’ obligations via three foreign‐currency loans:
• $661,330 (maturity 1990; 3% over DBP borrowing rate);
• $666,666 (maturity 1991; 3% over rate);
• $486,472.37 (maturity 1982; 4% over rate).
Each note provided additional fees, interest, and penalties for arrears and advances.
Foreclosure Proceedings and Suspension
In October 1985 DBP computed arrears at P62,954,473.68 (net of P5,150,827.71 paid). Foreclosure was repeatedly suspended upon respondents’ representations of pending AFP contracts, until respondents filed a suit for injunction in December 1986.
Trial Court’s Findings and Injunctive Relief
The RTC issued a permanent injunction, found DBP’s claim “blatantly enlarged,” blamed the AFP’s failure of consideration, ordered respondents to pay only P6.2 million original principal, applied P5.335 million prior payments to interest/penalties, and barred further charges.
Court of Appeals’ Affirmation
The CA affirmed, holding DBP failed to prove its computation; imposed unconscionable interest; applied relativity of contracts to AFP agreement; annulled the mortgage; and sustained the injunction despite PD 385.
Issues on Certiorari
PMO contends the CA:
• Disregarded binding force of duly executed contracts;
• Erroneously linked unrelated AFP contract to DBP loans;
• Misapplied PD 385 by allowing injunction against foreclosure;
• Erred in interest‐rate findings and loan obligation computation.
Standards of Review
Under Rule 45, the Supreme Court reviews only errors of law. The precise computation of respondents’ obligation involves legal principles and is properly reviewed here, despite factual underpinnings.
Refinancing and Restructuring Analysis
Refinancing replaces an old debt with a new one; restructuring postpones maturity and may modify terms. Respondents twice executed valid promissory notes and mortgages for their restructured/refinanced obligations without vitiated consent.
Vitiated Consent and Enforceability
Financial distress and lawful foreclosure threats do not constitute undue influence. The absence of coercion or fraud in note execution bars respondents from disavowing their contractual obligations under principles of estoppel and mutuality.
Foreign-Currency Obligation and Conversion
Obligations may validly be denominated in foreign currency and converted at prevailing rates. The CA erred in rejecting DBP’s explanation that peso depreciation increased the peso‐equivalent indebtedness.
Usury Law Considerations
Act No. 2655 (as amended by PD 116) capped interest at 12% per annum on mortgages. Because DBP’s variable rates over its borrowing cost could exceed 12%, DBP must explain its computations; any usurious excess is void and replaced by the le
...continue readingCase Syllabus (G.R. No. 138703)
Facts of the Case
- In March 1968, DBP granted respondents an industrial loan of ₱2,500,000 (₱500,000 cash + ₱2,000,000 in Progress Bonds), evidenced by a June 26, 1968 promissory note and secured by a mortgage on existing and future properties.
- In November 1968, DBP extended a five-year revolving guarantee of ₱1,700,000, reflected in an amended mortgage, due to respondents’ difficulty selling Progress Bonds.
- Respondents sold Progress Bonds only in 1972 at a 25% discount from face value.
- On September 10, 1975, DBP restructured outstanding principal (₱4,655,992.35) into a seven-year note (12% annual interest) with partial payments starting year 3; accrued interest (₱3,074,672.21) was taken up in a separate “Notes Taken for Interest” promissory note, both secured by mortgages.
- Late 1970s: respondents defaulted again; DBP refinanced obligations with three foreign-currency loans (1980–1981), evidenced by three dollar-denominated notes ($661,330; $666,666; $486,472.37) bearing interest “X% over DBP’s borrowing rate” and various service fees, penalties and advances charges.
Loan Agreements, Mortgages and Restructuring
- Original and amended mortgages covered buildings, machinery, equipment and other assets.
- 1975 restructuring consolidated two prior accounts into one promissory note under Board Resolution No. 3577 s. 1975.
- Interest on unpaid amortizations: 12% p.a.; penalty on past-due amortizations: 10% p.a.; bank advances charges: one-time A12% service fee + 8% penalty + 12% interest.
- “Notes Taken for Interest” secured similarly and bearing identical penalty provisions.
Refinancing with Foreign Currency Loans
- December 11, 1980 note: $661,330 due 1990 at 3% over DBP borrowing rate (becomes 1A12% under Jumbo Loan; reverts to 16% if underlying facility repaid).
- June 5, 1981 note: $666,666 due 1991 at similar terms (3% over rate; 1A12% Jumbo; 18% upon facility repayment).
- December 16, 1981 note: $486,472.37 due 1982 at 4% over rate (1A12% Jumbo; 18% upon facility repayment).
- Default charges: service fee 2% p.a.; interest on arrears at basic rate; penalty up to 16% or 8% p.a.; bank advances fees one-time 2% + 16%/8% interest & penalty.
Foreclosure Proceedings and Respondents’ Suit
- October 1985: DBP computed arrears at ₱62,954,473.68 (net of ₱5,150,827.71 intermittent payments) and initiated foreclosure.
- Foreclosure suspended 12 times (Oct 1985–Dec 1986) pending promised AFP contract f